Pizza Hut Files for Bankruptcy Amid Franchisee Lawsuit Loss

 

 

 

 

Korea Pizza Hut recently filed for corporate rehabilitation in court after losing a lawsuit filed by franchisees, which resulted in hundreds of billions of won in damages.

Korea Pizza Hut explained that it applied for corporate rehabilitation as a measure to resolve temporary operational difficulties due to account seizures by certain franchisees.

Korea Pizza Hut filed for rehabilitation with the Seoul Rehabilitation Court on the 5th, receiving a comprehensive prohibition order from the Rehabilitation 12 Division (Presiding Judge Oh Byung-hee) to prevent asset disposal and creditor enforcement.

The preservation and comprehensive prohibition order prevents the applying company from disposing of assets for the benefit of specific creditors and simultaneously blocks creditors from forcibly enforcing asset seizures before rehabilitation proceedings begin.

Along with the court’s measures, Korea Pizza Hut also applied for the Autonomous Restructuring Support (ARS) program.

The ARS program supports companies in negotiating restructuring with creditors.

The court explained, "Korea Pizza Hut applied for the Autonomous Restructuring Support program to resolve enforcement issues resulting from the lawsuit outcome smoothly."

The lawsuit's origins trace back to last September when the Seoul High Court partially ruled in favor of franchisees in their lawsuit against Korea Pizza Hut’s headquarters for restitution of unjust enrichment.

The court ordered Korea Pizza Hut to return 21 billion won in differential franchise fees collected from franchisees between 2016 and 2022.

Korea Pizza Hut has appealed the decision.

The company stated, "There are aspects that were not fully explained to the court, so we intend to seek a legal judgment from the Supreme Court."

Additionally, the initiation of the rehabilitation process was explained as a measure to release certain franchisees’ account freezing actions against the company.

A Korea Pizza Hut representative added, "Since some franchisees participating in the lawsuit seized the company’s bank accounts starting on the 4th of last month, there have been delays in employee salaries and payments to partner companies. The primary goal of applying for rehabilitation is to lift the account freeze and normalize the company’s cash flow."

Korea Pizza Hut has been experiencing management difficulties, recording losses over the past two years.

Last year, operating losses reached 4.52 billion won, nearly 20 times greater than the previous year, and sales fell below 100 billion won.

The company emphasized, “We are committed to protecting consumers and franchisees and will do our best to restore normal operations," showing a strong will for business recovery.

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Pizza Hut Files for Bankruptcy Amid Franchisee Lawsuit Loss